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Value Added Tax (VAT) is Nepal's primary indirect tax — charged on goods and services at every stage of the supply chain. If your business crosses the NPR 50 lakh annual turnover threshold, VAT registration is mandatory. Even below that threshold, voluntary registration can benefit businesses that deal with VAT-registered suppliers. The Value Added Tax Act 2052 (1996) and VAT Rules 2053 govern the entire framework — from registration to filing to audits. This guide covers everything a business owner needs to know about VAT in Nepal.
VAT in Nepal is governed by the VAT Act 2052 (1996). Standard rate: 13%. Registration threshold: NPR 50 lakh (5 million) annual turnover — mandatory above this; voluntary below. PAN is a prerequisite. Register at the Inland Revenue Office (IRO) or online at ird.gov.np. VAT returns: filed monthly by the 25th of the following month. Non-registration above threshold: penalty of NPR 10,000 or 100% of tax due, whichever is higher. Zero-rated: exports. Exempt: basic food, education, health, agriculture.
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What Is VAT in Nepal?
VAT (Value Added Tax) is a consumption tax applied at each stage of production and distribution. The end consumer bears the final tax burden, but businesses collect and remit it to the government. Key facts:
| Detail | Information |
|---|---|
| Governing law | Value Added Tax Act 2052 (1996) + VAT Rules 2053 |
| Administered by | Inland Revenue Department (IRD), Ministry of Finance |
| Standard rate | 13% |
| Zero rate | 0% — applies to exports and certain specified goods/services |
| Exempt | No VAT charged — basic food, agriculture, education, health services |
| Registration threshold | NPR 50 lakh (5 million) annual turnover |
| Tax period | Monthly |
| Return due date | 25th of the following month |
Who Must Register for VAT?
Mandatory Registration
VAT registration is compulsory if:
- Your annual turnover exceeds NPR 50 lakh (5 million) in taxable goods or services
- You import goods into Nepal for commercial purposes
- You provide services that are taxable under the VAT Act
- You are involved in government procurement contracts (many require VAT registration)
| Business Type | VAT Registration Required? | Notes |
|---|---|---|
| Manufacturer (turnover > NPR 50L) | Yes — mandatory | All manufacturing above threshold |
| Retailer/wholesaler (turnover > NPR 50L) | Yes — mandatory | Includes online sellers |
| Service provider (turnover > NPR 50L) | Yes — mandatory | Consultants, IT, hospitality, etc. |
| Importer | Yes — mandatory | Regardless of turnover for commercial imports |
| Small business (turnover NPR 50L) | Voluntary | Can register voluntarily to claim input tax credit |
| Exporter | Yes — recommended | Zero-rated but must register to claim refund on inputs |
Voluntary Registration
Businesses below the NPR 50 lakh threshold can register voluntarily. This is beneficial if:
- Your suppliers charge VAT and you want to claim input tax credit
- Your customers (B2B) prefer dealing with VAT-registered vendors
- You plan to grow beyond the threshold and want to establish VAT compliance early
- You deal with government contracts that require VAT billing
VAT Rates in Nepal
| Rate | Applies To | Examples |
|---|---|---|
| 13% (Standard) | Most goods and services | Electronics, clothing, restaurants, professional services, construction materials, furniture |
| 0% (Zero-rated) | Exports and specified goods | Goods exported outside Nepal, certain raw materials for export-oriented industries |
| Exempt | Essential goods and services | Basic food grains, fresh vegetables, milk, education, health services, agricultural inputs, books, public transport |
Important distinction: Zero-rated means VAT is charged at 0% but the supplier can still claim input tax credit. Exempt means no VAT is charged AND the supplier cannot claim input credit on related purchases. This distinction significantly affects business profitability.
VAT Registration Process
Prerequisites
- PAN registration — you must have a PAN before applying for VAT (see PAN card registration in Nepal)
- Business registration — company, sole proprietorship, or partnership must be registered (see company registration in Nepal)
- Business premises — you must have a registered business address
Online Registration
- Visit ird.gov.np
- Log in with your PAN credentials
- Navigate to "VAT Registration" section
- Fill in the application: business details, turnover information, bank account, business premises address
- Upload required documents
- Submit the application
- IRO may conduct a premises inspection before approval
- VAT certificate issued — your VAT number is typically your PAN number
Offline Registration (at IRO)
- Visit your nearest Inland Revenue Office
- Collect VAT registration application form
- Submit completed form with all documents
- IRO verifies documents and may inspect premises
- VAT registration certificate issued
Documents Required
| Document | Details |
|---|---|
| PAN certificate | Valid PAN registration — prerequisite |
| Business registration certificate | From OCR (company), DAO (sole prop/partnership) |
| Citizenship/passport | Of proprietor, partners, or directors |
| Proof of business premises | Rent agreement or ownership document |
| Bank account details | Business bank account statement or passbook copy |
| Passport-size photographs | Of the applicant/authorised person |
| Board resolution | For companies — authorising VAT registration |
| Projected turnover statement | For voluntary registration below threshold |
VAT Return Filing
VAT-registered businesses must file returns monthly:
| Detail | Requirement |
|---|---|
| Filing frequency | Monthly |
| Due date | 25th of the month following the tax period |
| Form | VAT return form (available online at ird.gov.np) |
| Filing method | Online (mandatory for most) or at IRO |
| Payment | Net VAT payable (output tax minus input tax credit) due with the return |
| Nil returns | Must still be filed even if no transactions in the period |
What Goes Into the VAT Return
- Output tax: Total VAT collected on sales during the period
- Input tax: Total VAT paid on purchases during the period
- Net payable: Output tax minus input tax credit = amount to remit
- Carry forward: If input exceeds output, the excess carries forward to the next period (or you can apply for a refund in specific cases)
Input Tax Credit (ITC)
VAT-registered businesses can claim credit for VAT paid on business purchases:
| Eligible for ITC | Not Eligible for ITC |
|---|---|
| Raw materials for production | Personal expenses of proprietor/directors |
| Office supplies and equipment | Entertainment expenses (partially restricted) |
| Professional services (accounting, legal) | Purchases without valid VAT invoices |
| Rent (if VAT-invoiced) | Goods used for exempt supplies |
| Capital goods (machinery, vehicles for business) | Passenger vehicles (restricted) |
Critical rule: You can only claim ITC if you have a valid VAT invoice (tax invoice) from the supplier. Invoices must show the supplier's PAN/VAT number, date, description, quantity, rate, and VAT amount separately. Receipts without these details do not qualify for ITC.
VAT Compliance and Audit
- Invoice requirements: Issue proper tax invoices for all sales; maintain purchase invoices for all inputs
- Record keeping: Maintain purchase and sales registers, VAT account, and supporting documents for 6 years
- VAT audit: IRD can audit any VAT-registered business; audits may be random or triggered by discrepancies in returns
- Annual reconciliation: Reconcile VAT returns with income tax returns and financial statements
Penalties for Non-Compliance
| Violation | Penalty |
|---|---|
| Not registering when above threshold | NPR 10,000 or 100% of tax due, whichever is higher |
| Late filing of return | 0.05% of tax due per day (or NPR 1,000 minimum per period) |
| Late payment of VAT | 15% annual interest on outstanding amount |
| Not issuing VAT invoices | Fine equal to the tax amount that should have been invoiced |
| Issuing fake invoices | 100% of the invoice amount + potential criminal prosecution |
| Not maintaining proper records | Up to NPR 10,000 per instance + assessment based on best judgement |
VAT for Foreign Businesses in Nepal
Foreign businesses operating in Nepal must comply with VAT requirements:
- Branch offices: Must register for VAT if providing taxable goods/services above the threshold
- Joint ventures: The Nepal entity registers and collects VAT
- Non-resident suppliers: Services provided from outside Nepal to Nepal-based businesses may be subject to reverse charge VAT — the Nepal recipient accounts for the VAT
- Import VAT: Charged at the border (customs point) on all taxable imports — PAN required for clearance
For income tax details, see income tax in Nepal. For TDS obligations, see TDS in Nepal.
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Frequently Asked Questions
The standard VAT rate in Nepal is 13%, applied to most goods and services. Exports are zero-rated (0%). Essential items like basic food grains, education, health services, and agricultural inputs are exempt from VAT.
VAT registration is mandatory for businesses with annual turnover exceeding NPR 50 lakh (5 million) in taxable goods or services. Businesses below this threshold can register voluntarily to claim input tax credit on purchases.
Yes — PAN is a prerequisite for VAT registration. You must first obtain your Permanent Account Number from the Inland Revenue Department before applying for VAT. Your VAT number is typically the same as your PAN number.
VAT returns are filed monthly, due by the 25th of the following month. Even if you have no transactions in a period, you must file a nil return. Late filing attracts penalties of 0.05% per day of the tax due or NPR 1,000 minimum.
Input tax credit (ITC) allows you to deduct VAT paid on business purchases from VAT collected on sales. The difference is what you remit to the government. You need valid VAT invoices from suppliers to claim ITC. Personal expenses and exempt supplies do not qualify.
Yes. Businesses below NPR 50 lakh turnover can register voluntarily. This is beneficial if your suppliers charge VAT (allows you to claim input credit), if your B2B customers prefer VAT-registered vendors, or if you deal with government contracts requiring VAT invoices.
If your turnover exceeds NPR 50 lakh and you fail to register, the penalty is NPR 10,000 or 100% of the tax that should have been collected, whichever is higher. You will also be liable for all uncollected VAT from the date registration was required.
Zero-rated: VAT is charged at 0% but the supplier can still claim input tax credit on purchases. Exempt: No VAT is charged AND the supplier cannot claim input credit. Zero-rating benefits exporters; exemption applies to essential goods like food and health services.
Yes — exporters should register for VAT even though exports are zero-rated (0% VAT). Registration allows you to claim refunds on input VAT paid on materials and services used for producing exported goods. Without registration, you cannot claim these refunds.
Yes. Online filing is available through ird.gov.np and is mandatory for most VAT-registered businesses. Log in with your PAN credentials, navigate to VAT return filing, enter your sales and purchase details, and submit. Payment can also be made electronically.
PAN certificate, business registration certificate, citizenship or passport of proprietor/directors, proof of business premises (rent agreement or ownership), bank account details, passport photos, and a board resolution for companies. Projected turnover statement for voluntary registration.
Yes — if they operate in Nepal and provide taxable goods/services above the threshold. Branch offices and joint ventures must register. Non-resident suppliers may be subject to reverse charge VAT where the Nepal-based recipient accounts for the VAT on their behalf.
Late filing penalty: 0.05% of tax due per day or NPR 1,000 minimum per period, whichever is higher. Late payment of VAT attracts 15% annual interest on the outstanding amount. Persistent non-filing can lead to deregistration and prosecution.
VAT-registered businesses must maintain all purchase and sales registers, VAT invoices, and supporting documents for 6 years from the end of the relevant tax period. The IRD can audit records within this period. Failure to maintain records attracts penalties.
Commercial rent is generally subject to 13% VAT if the landlord is VAT-registered. Residential rent is typically exempt. If your landlord charges VAT on commercial rent, you can claim input tax credit on it (provided you have a valid VAT invoice and use the premises for taxable business).
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